What Is Nearshoring?

No supply chain strategy is risk free, no matter how hard companies strive to minimize the friction and risks in their overseas sourcing and production of goods. In recent years, geopolitical and logistical risks have dogged companies’ offshore supply chain operations in faraway regions, convincing them to move some or all of those operations closer to home, to countries where they can still benefit from lower labor costs. Yet the promise of such nearshoring has become clouded in some regions, notably North America.

What Is Nearshoring?

A nearshoring strategy opts to locate some or all manufacturing and sourcing of raw materials, components, and wholesale goods to a nearby country instead of a distant one. The main driver is usually to reduce the unit cost of assembling and procuring goods, but there are other upsides. The logistical benefits of bringing these core functions nearer to a company’s headquarters or main target market can include greater control, lower transportation expenses, shorter lead times, and fewer bottlenecks along the way.

Moreover, customs procedures and tariffs are often more accommodating under regional free trade agreements among neighboring nations, which is why some nearshoring strategies are also referred to as “friendshoring.” Eastern European countries have become a preferred nearshoring destination for some Western European companies, for example, while US companies have increasingly turned to Mexico as an alternative to Asian manufacturing centers. But nearshoring isn’t without challenges, which may include higher labor costs compared to Asian offshoring, as well as local bureaucracy, weak infrastructure, poor security, and economic and political instability.

Nearshoring Explained

Nearshoring isn’t new. Consider that US companies have set up shop in Mexico for 60 years. But the momentum is growing, especially as rising labor costs and tariffs have lessened China’s attractiveness as a global manufacturing center. Most businesses polled by the US Chamber of Commerce in 2023 said they intended to keep at least some of their manufacturing in Asia, but they reported using multisourcing and multishoring strategies, including nearshoring, to spread their supply chain risks over two or more regions.

Fast forward to 2025 and the possibility of new tariff barriers in North America, which has boosted uncertainty for US businesses and the companies in their supply chains. Across the United States, supply chain managers have gone back to the drawing board to review their sourcing and manufacturing strategies, analyze the cost implications of various scenarios, and optimize their supply chains to brace for whatever comes next.